But many businesses don’t have insight into where that money goes and whether or not they’re pricing their products accordingly.
CloudZero Founder and CTO Erik Peterson sat down with Erik Carlin, Founder and CPO at ProsperOps, to talk about the transition in cloud cost optimization from 1.0 to 2.0.
They explored what data engineering teams need to make informed buying decisions, how to turn data into actionable intelligence, and why you should view cloud costs as an opportunity for ROI.
Begin With Finance-Aware Engineering
Give engineering teams the data they need to make informed decisions so they can understand and explain the exact costs needed to achieve their goals.
“‘Nobody really should care how much they’re spending on EC2,’ said Peterson. “They should care what they’re spending to build a feature or a function or some value that they’re delivering to the market.”
Helping engineers understand the value their work provides makes it easier to justify the cost to leadership.
“When the CFO comes and asks, ‘Hey, why does it cost so much?’ You can explain, ‘Well, that’s what it costs to deliver this feature,’” Peterson said.
That insight empowers engineers to think beyond cost and ask more insightful questions to help the business succeed.
“Then you get into the even more exciting conversations around, ‘Well, are we charging the right amount of money for that feature? Do we have good COGS and gross margins and things like that?’” said Peterson. “It all starts with finance-aware engineering.”
Looking for a helpful guide on organizing cloud spend? Read this.
Condense The Time To Data
Historically, the time it took for engineering teams to gain insight into the cost of their decisions was months or quarters, but it should be as fast as checking code.
“One of the big things here that’s really been a blocker for finance-aware engineering is the period of time it takes before a decision results in clarity or visibility into the cost of that decision,” said Peterson.
It’s not uncommon for that data to take months or quarters to come back to the team.
“Think about it from an engineer’s perspective,” Peterson said. “If you’re writing code and your system didn’t tell you if your code worked or not until the end of the month, you would find that pretty frustrating.”
Not only would that be frustrating, but the lack of data prevents the team from making savvy, informed decisions.
“No wonder engineers have a really painful relationship with spend because the work that they’re doing is so disconnected from the feedback loop,” said Peterson.
Companies need to get relevant data into the hands of their engineers much faster than today’s standard.
Use Automated Solutions
Delegating more manual tasks to engineering teams is not a sustainable solution to solving cloud cost optimization.
Many resources list dozens of recommendations for engineering teams to add to their already burdensome to-do lists.
“Ultimately, engineering needs to be involved in almost every decision and it’s just burdening engineering teams even more,” said Carlin.
The transition into cloud cost optimization 2.0 includes removing work from engineers’ plates, not adding to it.
“How do you take things that can be automated — that can be solved with computer science and algorithms and AI — how do we move to a world where those things are automatically handled?” Carlin said.
Automation lets you remove the work from the team’s plates while still getting that work done.
It’s the only way for teams to add these items to their task lists without becoming overwhelmed with optimization recommendations.
“In many ways, it’s a set it and forget it type of model,” said Carlin.
Shift From Cost To ROI
If you view cloud costs as an investment rather than an expense, you can measure the ROI through unit economics.
Peterson said that laying revenue data on top of pure cost “gets them to that ultimate unit economics nirvana where they can see not just what their cloud costs are, but what their cloud profit is.”
Financial data within the context of KPIs empowers teams to make data-driven decisions faster.
That lets companies “understand their cogs, their cost of goods sold, understand their gross margins, and then be able to break that out by features, regions, services, customers, whatever KPI drives their business,” Peterson said.
Those perspectives are possible when you focus on the ROI of all your cloud costs.
“That’s where unit economics really pushes that story home,” said Peterson.
Effective cloud cost optimization includes an understanding that those costs are an investment.
Unlock Opportunities With Intelligence
The combination of data and context is key to giving teams the intelligence they need to make better business decisions.
“Ultimately, the goal is to get to the point of intelligence, which is, ‘My cost per customer is X. My cost per feature is Y,’” said Carlin.
That data combination opens doors for every team to make more precise decisions.
Teams might use that data to change pricing, Carlin said, or “they might optimize the code so that somehow the price per feature goes down.”
“That intelligence really unlocks a whole new world,” said Carlin. “It’s not just about the underlying basic reporting and data of your costs, but it dimensionalizes it in a useful way for the business.”
Intelligence takes your data and combines it with various contexts so you can interpret the stories it tells.
Balance Cloud Costs With Unit Economics
With the right factors in place, unit economics should help keep cloud costs in check.
“It’s not that cloud cost is bad,” Carlin said. “It’s that you want to know and your finance team wants to know that your cloud costs match your usage. It’s about an ROI.”
It takes a combination of data, intelligence, automation, and finance-aware engineering decisions to reach that level of what Carlin calls “cloud cost nirvana.” That nirvana is an ideal state of balance between innovation and cost.
If you can align those elements to reach that balance, Carlin said, you’ll discover that “your costs are in line with the organization and you end up with either stable or even declining unit costs over time.”
“That’s really the goal,” said Carlin. “That’s what cloud cost optimization 2.0 can deliver.”
At CloudZero, we’re helping teams make efficient data-driven decisions at the forefront of cloud computing.
If you start to view cloud costs as an opportunity to optimize your ROI, you’ll be able to reach cloud cost nirvana. 
to see how optimizing cloud costs can transform your company.
The Cloud Cost Playbook
The step-by-step guide to cost maturity
